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A Renaissance of Engineering in the Internet Age ?
- Industrial dynamics in the Stockholm/Lake Mälarand the Bavaria/Baden-Württemberg Regions
Gunnar EliassonRoyal Institute of Technology (KTH)
Stockholm
Lisbon Civic Forum (LCF) SymposiumStuttgart October 21. 2010
1LCF Symposium Stuttgart Oct.21.2010
THREE STORIES
1. The past and the future of engineering as the backbone of the
industrial economies
2. Experimental regional dynamics2. Experimental regional dynamics
- some theory
3. Comparison of Stockholm/Lake Mälarand Bavaria/Baden- Württemberg
regions
2LCF Symposium Stuttgart Oct.21.2010
Technology/Policy Concoctions
1. First Industrial Revolution (Beginning in late 18th century in England)
-Machine tools/Decentralization/ Abolishment of craft-system/Massive income diversity
2. Internet Revolution (Accelerating around mid2. Internet Revolution (Accelerating around mid1990s)
- Computing and Communications (C&C) technologies/ Globalization of
production/National financial regulation policiesinoperative/ Massive income diversity?
- Probably more revolutionary
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C&C technologies have created new opportunities for engineering industries at three levels
1. Revolutionized Innovative new product development
2. Made business hierarchies moretransparent and allowed for morecomplex management structures
3. Globally distributed productionhas opened access to systems
productivities (NetworkingExternalities) and new optimal
organizational solutions LCF Symposium Stuttgart Oct.21.2010 4
Crude economies of scale and volume production
no longer as important
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Global Break up of Internal (Firm) Value Chains means
- a new life for the SMEs and the markets for specialist
subcontractors,subcontractors,- a more important role for the entrepreneurs, and (perhaps)
- a collapse of volume production among the wealthy economies ?
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But Difficult for
Firms to get their new productionorganization right
Business Mistakes Abound
Industrial Development becomes truly
Experimental
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UNDERINVESTMENT PROPOSITIONPROPOSITION
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Swedish Manufacturing production and Productivity 1546 - 2002
100
1000
10000
9
0,1
1
10
100
1500 1600 1700 1800 1900 2000
Labor productivity
Manufacturing output
LCF Symposium Stuttgart Oct.21.2010
100
1000
10000
Manufacturing Output in Sweden 1549-2008(Index 1900=100)
0,1
1
10
1500 1600 1700 1800 1900 2000
Source: Eliasson (1988), Schumpeterian innovation, market structure, and the stability of industrial development in Hanusch (ed.) Evolutionary economics - application of Schumpeter's ideas, page 158, Cambridge, New York etc: Cambridge University Press and updatings.
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Alternating1. Experimental, messy & unpredictable
with2. Steady state, orderly and predictable
phases of developmentphases of development
During the former ”shake outs” the allocation of resources may improve
During the latter growth may be faster for a while, because predictability improves, and volume
production increases. 11LCF Symposium Stuttgart Oct.21.2010
Engineering is the Old Industry in the New
Economy
Sophisticated mechanical Products Sophisticated mechanical Products will always be demanded
and produced in the high wage industrial economies
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that have 1. overcome the underinvestment
and2. the experimental transformation
needed for needed for
the renaissance of engineering as the future backbone of the rich, high wage industrial economy
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But not all industrial economies will cope
so the world is probably set for a so the world is probably set for a new era of major income diversity
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Current mainstram economic models not capable of capturing
thisYou need the
Theory of the Experimentally Theory of the Experimentally Organized Economy (EOE) and of
competence blocsto understand what is going on
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THE EXPERIMENTALLY ORGANIZED ECONOMY (EOE)
1. The Knowledge Based Economydefines the assumptions necessary to make room for real Entrepreneurs
2. Schumpeterian Creative Destructionendogenizes growth through competitive selection
3. Competence Bloc Theorydefines efficiency of selection and the commercialization process
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defines efficiency of selection and the commercialization process
4. Institutions orient incentives, direct competition and reduce uncertainty
5. Social Capitalmakes the unpredictability and arbitrariness of life in the EOE socially more
acceptable
Source: Eliasson , 2005, The Birth, the Life and the Death of Firms, Stockholm:The Ratio Institute
LCF Symposium Stuttgart Oct.21.2010
THE NATURE OF EQUILIBRIUM
IN THE MODEL
DETERMINES THE NATURE
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DETERMINES THE NATURE OF THE THEORETICAL
ENTREPRENURSource: Eliasson, 2005, The Birth, the Life and the Death of
Firms, Stockholm: The Ratio Institute
LCF Symposium Stuttgart Oct.21.2010
In the EOE there are always Better Allocations of Resources
than the Existing One
During the shake out necessary to achieve a
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During the shake out necessary to achieve a significantly better allocation
- Many business mistakes- Widening income distributions
Source: Eliasson,2005 , The Birth , the Life and the Death of Firms, Stockholm:The Ratio Institute
LCF Symposium Stuttgart Oct.21.2010
Macroeconomic Growth through Schumpeterian Creative Destruction
1. Innovative Entry enforces through competition
2.Reorganization3.Rationalization
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3.Rationalizationor
4. Exit ( shut down or death)of Firms
Source:Gunnar Eliasson, 1996,Firm Objectives, Controls and Organization- the use of
information and the transfer of knowledge within the firm,Boston,Dordrecht,London:
Kluwer Academic Publishers (p.45)
LCF Symposium Stuttgart Oct.21.2010
The Actors in the COMPETENCE BLOC
1. Competent and active Customers
Technology Supply
2. Innovators who integrate technologies in new ways
Commercialization Actors
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Commercialization Actors3.Entreprenurs who identify profitable innovations
4. Industrially competent Venture Capitalists who recognize and finance the entrepreneurs
5. Exit market actors who facilitate ownership change6. Industrialists who take winners on to industrial scale production
Source: G. Eliasson and Å.Eliasson, 1996,The Biotechnological Competence Bloc Revue d`Economique Industrielle 78-4, Trimestre
LCF Symposium Stuttgart Oct.21.2010
Since the range ofcommercialization competences
alwaysmore narrow than range of
innovative technology suppliesinnovative technology suppliesBusiness mistakes will be
constantly committed
Source: Eliasson (ed), 2005, The Birth , the Life and the Death of Firms,Stockholm:The Ratio Institute (pp 39ff)
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When the Competence Bloc is- Vertically Complete and
- Horizontally VariedCritical mass has been reached
The economic consequences of business mistakes are minimized
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mistakes are minimized The competence bloc becomes an attractor and
spillover generator, and growth is endogenized
a WINNER can now confidently carry on its search for resources
LCF Symposium Stuttgart Oct.21.2010
The Underinvestment Proposition
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Volume manufacturingas the source ofindustrial wealth
- It was in the past- Will it still be in the future ?
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The FOUR COMPETENCE BLOCS in the Lake Mälar and Bavaria/Baden-
Württemberg regions
1.Engineering
2. Computing & Communications (C&C)
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Communications (C&C)
3.Biotech/ Pharmaceuticals
4. FinanceLCF Symposium Stuttgart Oct.21.2010
THE LARGE FIRMS AND DOMINANT COMPETENCE BLOCS IN THE LAKE MÄLAR REGIONENGINEERING
ABBAGA
ALFA LAVALASSA ABLOY
ATLAS COPCOAUTOLIV
ELECTROLUXHALDEX
DANA/ GERTRAG/ VOLVOSCANIA
VOLVO CONSTRUCTION EQUIPMENT (VCE)BIOTECH/ PHARMACEUTICALS/ MEDICAL EQUIPMENT
PHARMACIAGEH
PFIZERBIOTAGEBIACORE
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BIACOREBIOVITRUM
GYROSPHARMACIA DIAGNOSTICS (PHADIA)
Q-MEDetc
ASTRA ZENECAAKZO NOBEL
KAROBIO(GAMBRO)
ELEKTACOMPUTING & COMMUNICATIONS ( C&C )
ERICSSONTELIA SONERA
(NOKIA)FINANCIAL MARKETS
OMXLCF Symposium Stuttgart Oct.21.2010
Automotive and Transport Outside Stockholm/Lake Mälar Region
Hägglund/Bae Systems (Örnsköldsvik)Saab (Linköping)
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Saab (Linköping)Saab Automobile (Trollhättan)
Volvo Aero (Trollhättan)Volvo Car (Göteborg)
Volvo (Göteborg)
LCF Symposium Stuttgart Oct.21.2010
LARGE FIRMS AND COMPETENCE BLOCS IN BAVARIA/ BADEN-WÜRTTEMBERG
ENGINEERINGAUDI (Ingolstadt)
BMW (Munich)BOSCH (Stuttgart)
DAIMLER BENZ (Stuttgart)PORSCHE (Stuttgart)
MAN (Munich)HEIDELBERGER DRUCK
BIOTECH/ PHARMACEUTICALSALTANA
BASFBOEHRINGER- MANNHEIM
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BOEHRINGER- MANNHEIMCOMPUTING & COMMUNICATIONS
SIEMENSEPCOS
INFINEONSAP
AEROSPACEEADS
FINANCIAL MARKETSALLIANS
(DEUTSCHE BANK)BAYERISCHE HYPOVEREINSBANK
BAYERISCHE LANDESBANKMUNICH RE
LCF Symposium Stuttgart Oct.21.2010
EXPERIMENTAL INDUSTRIAL DYNAMICSin automotive industry
Sweden
Scania (VW?)
Volvo Car (Ford, Geely)
Saab Automobile (GM, Spyker)
Southern GermanySouthern Germany
Audi (VW)
BMW
Daimler Benz (previously Daimler Chrysler)
Porsche (VW?)
MAN (VW?)Source: Eliasson, 2010, The Internet as a Global Production Reorganizer
- The moving forces of distributed and flexibly integrated manufacturing
Paper (revised) prepared for the 13th Conference of the International Joseph A. Schumpeter Society , Aalborg, 21-24 June 2010
P
aper (revised) prepared for the
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CONCLUSIONS FOR SWEDEN
1. NO LACK OF TECHNOLOGY , but2. SIGNIFICANT LACK OF COMMERCIALISATION COMPETENCE
3. SWEDEN MAY HAVE LOST ITS PREVIOUS COMPETITIVE ADVANTAGE IN INNOVATIVE BIG BUSINESS MANAGEMENT and
OVEREMPHASIZED VOLUME PRODUCTION
4. SINCE SWEDISH INSTITUTIONS HAVE LONG BEEN PROTECTIVE OF BIG BUSINESS, BUT DESTIMULATED NEW FIRM ESTABLISHMENT AND SME
GROWTH SWEDEN LACKS THE BROAD COMMERCIALISATION COMPETENCE
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GROWTH SWEDEN LACKS THE BROAD COMMERCIALISATION COMPETENCE NEEDED TO FILL IN WITH NEW ESTABLISHMENT AND EXPANDING SMEs
WHERE FAILING LARGE FIRMS LEAVE5. SUSTAINABLE LOCAL FINANCE TO RESTRUCTURE LARGE FIRMS
INSUFFICIENT
6. THANKS TO FOREIGN INVESTOR COMPETENCE AND FINANCE
THE GROWTH PICTURE, HOWEVER, STILL LOOKS OK
Source: Eliasson,2005, The Birth, the Life and the Death of Firms, Stockholm: RATIO:
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Comparison
Lake Mälardalen and Bavaria/Baden-WürttembergBavaria/Baden-Württemberg
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ComparisonLAKE MÄLAR TRANSFORMATION
DIAGNOSIS
• SPECIALIZED LARGE FIRMS• OVEREMPHASIS OF SCALE• DEFICIENT COMMERCIALISATION COMPETENCE• NON ATTRACTIVE ENVIRONMENT FOR NEW AND SMALL BUSINESS
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SHAKE LOOSE HYPOTHESIS
• THOROUGH COMPETITIVE SHAKE UP• RICH TECHNOLOGY SPILL• MANY LARGE PREVIOUS FLAGSHIPS NOW FOREIGN OWNED• HIGH RISK OF TRANSFORMATION FAILURE, but
- POTENTIAL FOR RADICALLY POSITIVE TRANSFORMATION WITH HELP OF FOREIGN INVESTOR COMPETENCE
LCF Symposium Stuttgart Oct.21.2010
BAVARIA/ BADEN- WüRTTEMBERG TRANSFORMATION
DIAGNOSIS• LESS SPECIALIZED FIRMS• BROADER INDUSTRIAL COMPETENCE BASE• MORE ATTRACTIVE ECONOMIC ENVIRONMENT
SHAKE LOOSE HYPOTHESIS
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• LESS PROFOUND• LOWER RISK OF TRANSFORMATION FAILURE• RAPID BURNING OF RESOURCES• THE LARGE FIRMS STILL AUTONOMOUS AND GERMAN
OWNEDLESS POTENTIAL FOR RADICAL TRANSFORMATION - But maybe not needed
Source: Eliasson , 2005, The Birth, the Life and the Death of Firms, Stockholm:Ratio
LCF Symposium Stuttgart Oct.21.2010